Washington state rule change expands business options for marijuana cultivators

Washington state recently eased restrictions on how many producer licenses marijuana businesses can own, a move that could lead to more competition, an uptick in mergers and acquisitions and possibly increased supply.

Under the state’s revised policy, business owners can up their licenses from one to three, effective immediately.

The Washington Liquor and Cannabis Board (LCB) originally planned to allow businesses up to three licenses to cultivate marijuana but tabled that scenario in the legal market’s early stages.

When regulators wrote the rules for producer licenses, it separated growers into three tiers based on the square footage of their canopies:

Tier 1: 2,000 square feet or less

Tier 2: 2,000-10,000 square feet

Tier 3: 10,000-30,000 square feet

License holders that have been producing to the limit of their allotted square footage have been eagerly awaiting the LCB’s change, eyeing production facilities that are either operating under capacity or not at all.

The rules alteration also offers another option to struggling business owners seeking to exit the industry or those simply looking to partner up.

“One of the reasons why this conversation was needed is that some producers who were operating at capacity wanted to grow, and they’re looking at other licenses that aren’t being used or used minimally,” said Aaron Pickus, spokesman for the Washington CannaBusiness Association.

‘Flurry of mergers’

“I think we’re going to see a flurry of mergers,” said Daniel Shortt, a Seattle-based cannabis attorney with the Harris Bricken law firm.

Shortt projects the licensing change will allow “producers who are currently at capacity to acquire other licenses either by merging or purchasing the businesses that hold licenses, allowing them to expand and have that canopy space.”

Based on the state’s original regulations, many business owners built into their plans the potential for holding multiple licenses, said Jerry Derevyanny, an executive with Tumwater, Washington-based Northwest Cannabis Solutions.

“I think a fair number of business owners have been waiting for this,” he added. “We’re happy that the LCB listened to the industry.”

Derevyanny has modest expectations for changes to the state’s business landscape.

“You are going to see a little blip of (M&As) initially because so many people have been waiting for so long,” he said. “But I don’t know if we’re going to see a wave of consolidation. I don’t want to downplay it or overplay it.”

More options

The licensing change also opens possibilities for producers who aren’t bursting at the seams with their crop.

“From the perspective of a license holder who isn’t using the full canopy space, is limited financially or isn’t able to support that large of a crop, those license holders now have another option and can work with successful licensees who are at full capacity,” Shortt said. “It gives these businesses that might be struggling another option – an option out if they want it or an option to partner up and get the full return on their allotted canopy space.”

Pickus sees this as a way to level the playing field.

For example, he said, by obtaining additional licenses, a company that started with a Tier 1 permit will soon be able to compete with the larger producers in the state.

Before the change, a boutique producer who enjoyed success and product growth eventually might hit a ceiling.

“They’re being artificially held back by the license,” Pickus said.

Derevyanny envisions businesses eventually possessing a combination of different tiered licenses.

“The more flexibility you give to people in how they set up their operations – assuming they stay compliant and they work well with the LCB – it’s just better for the industry and better for the business owner,” he said.

The mergers and acquisitionsof Washington state cannabis businesses must go through the LCB.

According to board spokesman Mikhail Carpenter, after a licensed business acquires another, it will file with the state an assumption of the additional company. Once that’s complete, the LCB will investigate the assumption.

“They would remain separate licenses,” Carpenter said. “You’re not consolidating all into one license.”

A business going through the process must submit to a routine background check.

“Some (will) go faster and some slower depending on the preparedness of the applicant,” Carpenter said.

“I don’t think it’s a foregone conclusion that you’re going to have a lot more marijuana,” he said. “A lot of this canopy is already being used. People are just going to sell this canopy to another business owner or they’re going to merge.”

2 comments on “Washington state rule change expands business options for marijuana cultivators”

what a fking joke. this pseudo legalization is a complete bastardization of the entire process and has given a few people the ability to print money while the rest get screwed. If it’s legal,…why can’t anyone who wants to start a business..start a business? Provided they can purchase the license and the space. If I want to start a plumbing company it doesn’t matter if there’s 8million of them in my area I can still start one. How is this any different? Not to mention the amount the government would make is staggering and allows the capitalistic nature we are supposedly founded on to flourish. This is just straight up wrong on so many levels.

Recreational cannabis has been massively over-produced in Washington State since 2015. The statement that the above changes will not result in over production is true, only because that condition already existed in abundance. The vast majority of the benefits of this change go to the large, corporate grows which almost as a rule produce a product which should not be consumed. The Washington State recreational marijuana scene is a complete disaster and is delivering no safer of a product to the public than existed in the black market. What is happening with all the excess product…. black market. It is all a very not funny joke.